How on earth is it possible they can cover a 1.5B loss? Are they really sitting on that much profit, or is the goal to ponzi it out from here, MtGox style?
Being a crypto exchange in current market is very profitable. If the crypto itself does not collapse, I think it's totally possible for them to repay that sum in a year or less.
</speculation>
Just last quarter, Coinbase had:
Revenue: $2.2B
Net Income: $1.3B
https://s27.q4cdn.com/397450999/files/doc_financials/2024/q4...
Yet another way crypto moves money from poor suckers to insiders.
What’s so wrong with that?
It’s the same reason why buying a single soda at a convenience store cost more (per unit) than buying a large pack at Costco.
This is like Coke ONLY giving discounts to Costco instead of anywhere else so that Costco can reap the rewards. Walmart, Target, they can all pay full price.
The convenience store spends more money to package individual items. A crypto transaction is the difference of a keystroke. They are not comparable on many fronts.
Tier Taker Fee Maker Fee
---------- --------- ---------
$0K-$10K 60bps 40bps
$10K-$50K 40bps 25bps
$50K-$100K 25bps 15bps
Only those transactions at the higher volume tier get the higher discount (and everyone is eligible for that same discount).
So consumers are charged 40x. Nice business. TradFi has wet dreams of margins like that for simple exchange business.
Source: Their 2024 10K, pages 92 and 94, and my calculation.
For 2024, in $bn:
Transaction Volume Revenue Cut
Consumer 221 3.43 1.55%
Institutional 941 0.345 0.04%From a societal impact perspective, it adds transactions that may not have happened otherwise, but these are mostly isolated effects from what I can tell. This can spur the economy with spending, and be more efficient. Ultimately however, it ensures that those with more money and the ability to buy in bulk lose less money than the tired masses. This should lead to wealth inequality over time.
Without knowing what impact each of these individual variables has in isolation, it’s difficult to define metrics for “net benefit” to society with any real certainty, let alone begin to measure them.
It's value is from speculation assuming future speculation will assume more future speculation
Otherwise, it is clear where the value comes from.
No, what is likely happening with all the convertible bond issues is that MicroStrategy prices the bonds in a manner to attract market neutral hedge fonds, meaning arbitrageurs. Saylor has briefly mentioned these firms, as opposed to firms seeking actual Bitcoin exposure. For issue after issue, they can be spotted as the largest bond holders by anyone with a Bloomberg terminal. By buying the bonds, even when conversion price is at a large premium, and by simultaneously shorting the shares, these arbitrage funds can lock in close to risk-free profits. Due to the convex nature of the value of the convertible bonds, the hedge funds attempt to profit no matter whether MicroStrategy shares rise or decline
Like, a broker profiting off PFOF in the stock market makes sense because there's an underlying asset generating real cashflow that people are buying into. But where is the money in crypto actually coming from? You have to pay miners, brokers, rugpulls/thefts/etc and there's barely any cashflow from the underlying assets (dApps?). But if it really is ~just a casino, with retail gamblers as the only real source of cash, it can still be profitable for smart money to pour billions in and use their PhDs to trade the vol. It goes up, it goes down, overall retail is bleeding huge amounts of cash on a sort of 5 dimensional pyramid scheme but enough gamblers go viral winning the slots/blackjack that the casino doesn't run out of customers.
Can this continue indefinitely? Maybe / probably? Seems similar to sports betting, Polymarket, retail now ~70% of options trading. The west and especially America becoming a gambling culture. The "bubble" may burst and reinflate over and over.
https://medium.com/@bdratings/all-your-models-are-destroyed-...
This sounds exactly like the rationale for the box spreads incident on WSB a couple years ago.
"literally cannot go tits up!"
Where does the valuation of a payment processor come from?
Or is the objection that no one is actually using them to process payments, only to gamble? If so I'd ask for citations regarding the exact market breakdown.
> Even considering a huge part of that volume is coming from institutional players who enjoy significantly reduced commission rates...
But the volume is huge. Even if we take the best publicly shared MM rates from Bybit (which is 1.5bp taker commission, 0.5bp maker rebate), and assume the whole volume is traded with these rates, it is still 1bp from 40B dollars, which is 4M dollars daily.
It sucks if you're Bybit, but they're going to have plenty of lenders happy to provide them liquidity while they make it all back.
It's not that crypto folks don't want some protection from hacks or fraud - the just think it should only be for the rich.
Since it was a profitable broker business, another bigger broker gave them the money to plug the loss in exchange for taking over the business.
If this isn't enough, I'm sure that every crypto VC would line up to buy a single digit % of their equity to cover up the hole. Crypto hosts the most profitable businesses in the world.
Well, because the retail clients expect to get rich and don't mind paying 1% or so fees per exchange.
Similarly, the BTC future basis (the difference between the spot price and future price) on many exchanges around 10 to 5 years ago was easily 80% p.a. which you could realize by buying Bitcoin and selling the future. What happened there is that people going long Bitcoin with leverage essentially borrowed the money giving them that leverage at usurious rates (this implied rate is not usually displayed and thus invisible to your average retail client, but definitely very visible to the finance professionals moonlighting in crypto (such as Jane Street, Jump trading, and many others)).
Crypto use case: ripping off retail.
The neutral rate for perps is 10%, which is lower than the credit card borrowing rate in the USA. And nothing prevents retail investors to earn it by shorting while holding spot.
Last, Tether is crypto's most profitable business, and likely the world's most profitable if you account on $ of profit per employee, and is not an exchange.
Remarkable dereliction of responsibility. I don't understand why we let them get away with it.
And of course that stablecoin providers conduct AML and KYC when you redeem/mint them. It's like complaining that the gold foundries don't control the secondary market for ingots and gold coins.
This utility has always been at odds with the (relatively recent in comparison to Eurodollars, as far as I understand) desire to and ability of the US government to use USD financial rails as a political tool via sanctions.
Easy! They give Binance an IOU in exchange for 1.5 billion BUSD which is just "minted" out of fresh new electrons. Neither of them has really lost anything. Everyone can carry on as if it never happened.
In the bizarro world of crypto, this is business as usual.
It was approved by the New York State Department of Financial Services (NYDFS).
The Department has not authorized Binance-Peg BUSD on any blockchain, and Binance-Peg BUSD is not issued by Paxos.
As far as I know Binance ended the Binance-pegged BUSD (the BNB chain version bridged from ethereum) without any problem or holder loss?
Your exception is the answer.
Only the central regulator can "mint" money and doing so has real world consequences. The central regulator has financial incentives to limit this sort of activity.
The bizarro world of crypto has no such regulation and as a result, it is inherently unstable.
The proof of this is right in front of you --- it is the fact that "stable coins" exist. The only way to bring stability to the bizarro world of crypto is by tying it to "fiat" --- which is the very thing crypto is supposedly working to eliminate.
Contradict and hypocrite much?
>Crypto is speedrunning the entire evolution of finance to end up at the same place
Those who don't learn from history are doomed to repeat it.
Individuals/banks minting their own money has been tried before. It didn't go well.
These people hear it and think "You mean we get to repeat history?!"
> The only way to bring stability to the bizarro world of crypto is by tying it to "fiat"
False. It's possible to make stable-coins using just price oracle and collateral. "Fiat" is not necessary. E.g. https://www.liquity.org/bold
You didn't even finish reading the first paragraph.
> Bank reserves are held as cash in the bank or as balances in the bank's account at the central bank
The collapse of svb shows how much the central regulator cares about making sure the entire banking system doesn't fall apart, too.
With the way you remarked "false" at the OP, though, I don't expect you're here for an engaging and educational discussion, so I'll leave it here. lol
https://www.federalreserve.gov/newsevents/pressreleases/mone...
>the Board has reduced reserve requirement ratios to zero percent effective on March 26, the beginning of the next reserve maintenance period. This action eliminates reserve requirements for thousands of depository institutions and will help to support lending to households and businesses.
Most attempts at "algorithmic" stable coins have failed. See TerraDollar, Luna and Titan.
And you just know that the "collaterized" ones are? In most cases, their books aren't open. And they wouldn't lie about this would they?
In some strange way, the crypto brain has been programmed to ignore the obvious with a hand wave and just accept all the chicanery that is crypto.
Maker initially worked same way, but eventually they started accepting off-chain collateral.
The central regulator caveat is also a huge caveat to brush aside. During the last round of systemic stress, the banking system essentially got a guarantee that all uninsured deposits would be protected, and banks were allowed to post their collateral for liquidity at terms that no other business has access to.
What OP is referencing is the oft-seen practice in the crypto space where failed entities fill an asset hole with propped up tokens, essentially transforming their paper loss on the balance sheet into liquidity risk that doesn't show as readily.
The important point here is that in the latter case, the entity may be fully insolvent, even after accounting for future cashflows on loans. When it comes to banks, even the left tail cases like SVB, their "problem assets" are things like long term treasuries, which are way down the risk curve when compared to the ponzi-tokenonics style "stablecoins" that we've seen unwind over the past few years.
I often read this sort of comment from crypto-defenders, but is it what banks do?
I’m relatively naive about these things, but my impression is that a bank losing this proportion of their assets can’t just ‘pretend’ they have the money, or create ‘new’ money.
If someone stole a trillion dollars from JP Morgan, JP Morgan can't make themselves whole by creating a new trillion dollars.
The central authority might guarantee the customers of JP Morgan that their money is protected, but they won't print money to make the bank whole.
Another is modern monetary theory (MMT), and in that, commercial banks are indeed the primary creators of money, with the central bank playing a technically more passive role.
Still, in either model of money creation (i.e. classical "money multiplier" and MMT), governmental regulators (which can be the central bank or others) do ultimately control the rate of money creation via various mechanisms.
Both systems stink for those at the end of the chain, i.e. us; you can decide which one is worse.
Can we trust that? Suppose that ByBit couldn't cover the loss, and the CEO would honestly inform the world about it. What would happen? The crypto-equivalent of a bank run. So he would never say that.